Should you rent out your home in the UK as an expat?

Whether you’re retiring as an expat in the sun or you’re moving halfway around the world to enhance your career prospects, knowing what to do with your home in the UK can be tough.

Many expats choose to keep a base at home should they wish to return, whilst others prefer to sell their assets in the UK so that they’ve got more to spend when buying a new property overseas. One option to consider is renting out your property in the UK so that your home is maintained by another family, providing you with an income to fund your expat lifestyle.

However, before you make a decision on whether to rent out your property, there are several factors you need to take into consideration. Below, we’ve put together some of the biggest…

Consider the market

The UK rental market is growing at record speed, with the latest figures suggesting a quarter of all households will rent privately by 2021 (source: Knight Frank Tenure Distribution Model, 2017). That figure has ballooned from 10% back in the 1990s, demonstrating the power of the private rental sector, and the potential for homeowners to generate an additional income.

However, it’s also important to consider the wider sector, and decide whether or not property prices will rise in your area. There are so many factors that can influence the price of your property, and as we’ve seen with the political and economic turmoil brought about by Brexit, nothing can be guaranteed. However, the idea is simple: if you’re confident your home will be worth more in ten years than it is now, then it might be wise to hold onto it and rent it out. If the opposite is true, cashing in now and selling your home is the better short-term option.

Read the small print

If you’re an expat with a property in the UK, there’s nothing stopping you from putting your property on the rental market. However, you should check whether your current mortgage company allows you to do so, as some banks and lenders prohibit homeowners from renting out a property during their mortgage period. You may choose to switch to a buy-to-let mortgage, but remember that these often charge higher interest with expensive set-up fees.

Decide whether it makes sense

If you’re yet to buy a new property overseas, you should calculate whether it makes sense to hold onto your UK property - especially if you’re still making mortgage payments. Indeed, a second charge mortgage allows you to use any equity in your first home as security against another, but this can increase the risk. Selling your UK property would afford you a greater deposit, allowing you to secure a bigger mortgage and move into your dream home abroad.

Managing tenants from abroad

Once you have decided to rent out your home in the UK as an expat, you should consider how you’ll manage your property and tenants from another country. Most expats choose to either manage the property themselves, visiting the UK regularly and relying on friends and contacts to handle maintenance, or they work with a lettings agent. There are benefits and drawbacks to both options - the latter involves sacrificing a percentage of your monthly income, but affords you the peace of mind that problems will be dealt with and your property will be looked after, as regular inspections and reports will be conducted on your behalf.

If you’re renting your home to family or friends, managing the agreement without a letting agent allows you to keep 100% of your monthly rental income, minus tax, and serves as a relaxed approach. But remember that there is risk involved with renting a property and that as a landlord, you have responsibilities and legal obligations to keep your property in a safe and liveable condition. Signing tenancy contracts is advisable, offering security to both parties.

Understanding tax

If you receive an income from renting out your property, you must pay UK income tax. Most UK citizens and those living in a European Economic Area (EEA) country receive a £12,500 tax-free Personal Allowance each year, although those living outside of the EEA do not, and must pay 20% tax on all income under £50,000 (the new higher rate tax threshold in 2019).

Rather than submitting a tax return like you would if you were in the UK, the Non-resident Landlord Scheme means either the lettings agent or tenant must register with HMRC and deduct tax from their rent and pay the government; the rest is sent to you. More on that here.

Thinking about foreign exchange

As we’ve seen over the past few years, dramatic currency fluctuations can have a major impact on foreign exchange rates. Depending on where in the world you live as an expat, this can have a positive or negative effect on your income, which is something to bear in mind when renting out your property. When Sterling strengthens, your income may suffer.

Most tenants will pay you into your UK bank account, and you can transfer the money into your foreign bank account and pay a currency exchange fee for the privilege. Alternatively, you could save the money in a high-interest UK bank account for the future (to pay off your mortgage or save for retirement), or open an account with a currency transfer company and have your payment delivered in your new currency, reducing exchange rates and charges.

Insuring your property

Finally, you should take into consideration insurance, and purchasing the right expat landlord insurance for your needs. Before you leave the UK and start renting your property, you must ensure your property is fully insured. Look for a policy that covers buildings, contents, rent arrears, accidental damage, malicious damage, and legal costs should you get into a dispute with your tenant. The more comprehensive the policy, the easier it’ll be for you as an expat.

Before renting your home as an expat, we recommend that you seek professional advice to ensure you make the right decision. Weigh up the pros and cons of both sides, and above all else, remember that renting out your property doesn’t have to be forever - if, after a year, you decide you’d prefer to sell or move home, you can, provided your tenancy agreement allows.

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